Evaluate the impact of the following proposed mergers upon the postmerger earnings per share of the combined organization:

a. An acquiring bank reports that the current price of its stock is $25 per share and the bank earns $6 per share for its stockholders; the acquired bank’s stock is selling for $18 per share and that bank is earning $5 per share. The acquiring institution has issued 200,000 shares of common stock, whereas the acquired institution has 50,000 shares of stock outstanding. Stock will be exchanged in this merger transaction exactly at its current market price. Most recently, the acquiring bank turned in net earnings of $1,200,000 and the acquired banking firm reported net earnings of $250,000. Following this merger, combined earnings of $1,600,000 are expected.

b. Suppose everything is the same as described in part a; however, the acquired bank’s shares sell for $36.00 per share rather than $18.00. How does this affect the postmerger EPS?

  • CreatedOctober 31, 2014
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